Business owners often consider liquidation if a business becomes unprofitable or overwhelmed by debt. Unfortunately, most investors have a challenge deciding how to liquidate their companies. Thankfully, all liquidation processes are conducted by licensed insolvency practitioners who manage creditors, sell business assets and complete all company operations by the book.
There are a few things directors and business owners should learn about to kickstart the liquidation process. Here is a step-by-step guide for understanding corporate insolvency services. This helps in understanding the level of involvement required to make the process as smooth as possible.
Step 1: Directors decide to liquidate the company
Although people start businesses without expecting to fail, unfortunate financial problems may push them past the point of salvation. Once business owners determine the company is insolvent or is likely to be, they have a responsibility to prioritize the interests of creditors and fellow shareholders.
This means they should avoid taking actions that may further hurt the position of the creditors, subjecting them to further losses. This stage of corporate insolvency services calls for a united agreement towards liquidating the company by stopping all trading activities.
Step 2: Appoint an Insolvency Practitioner
When considering corporate insolvency services, business owners and directors can choose who they want as liquidators. The liquidator must be a licensed insolvency practitioner to offer these services. They will call a meeting with the creditors where they vote about their nomination. If there is no pushback among the creditors, then the insolvency expert will be appointed by confirmation.
Step 3: Gathering Information and Investigations
The newly appointed insolvency expert will collect any relevant financial and operational information about the company. This includes reviewing financial records, contracts, and other documents like GST indirect tax. The insolvency practitioner will also conduct other duties like;
- Identifying company assets and liquidating them for the benefit of creditors
- Liaising with creditors
- Handling employees, including redundancies
- Investigation of any potential direct misconduct issues
Step 4: Paying Creditors
When the company enters liquidation, business directors will not have any contact with the creditors. The insolvency practitioner will liaise with creditors on behalf of the directors in case of any correspondence. It is up to the liquidating professional to ensure timely payment of creditors.
They do this by liquidating all company assets to get money. After identifying and selling assets, the corporate insolvency services will find a way to distribute the funds collected from the process. This is done according to the claims hierarchy;
- Secured creditors with a fixed charge
- Preferential creditors
- Secondary preferential creditors
- Secured creditors with a floating charge
- Unsecured creditors
Step 5: Conclusion of Process
After the insolvency practitioner completes all these steps, they will conclude the corporate insolvency service. This process involves closing company operations, finalizing outstanding matters and preparing the final report for stakeholders. The company will either be placed under receivership or dissolved based on the jurisdiction and outcome of the process.
The insolvency process is complex and may vary significantly depending on the jurisdiction, circumstances and company operations. Seeking the help of a professional insolvency practitioner or legal expert is recommended to make the process effective.
